Non-Employers Growing: A Concern?

census bureau survey of business owners

The Census Bureau recently released its preliminary figures from the Survey of Business Owners (SBO) — the statistical agency’s twice-a-decade snapshot of the status of American businesses.

Census Bureau Survey of Business Owners

The numbers do not tell a pretty picture about America’s small business sector. Both employment and real sales at the average American business declined between 2007 and 2015.

While there are a limited number of conclusions that can be drawn from preliminary data released by the Census (both because the figures are subject to revision and because the statistical agency has, to date, only made public a small portion of the SBO’s results), one conclusion is clear: The declining tendency of American small business owners to employ other people has led the average company to shrink both in terms of numbers of workers and amount of sales.

The fraction of businesses with employees shrank over the five year period, causing the number of people working at the average American company to fall.

Between 2007 and 2012, the share of American companies with paid employees declined from 21.2 percent of all U.S. businesses to 19.6 percent. The number of employees at the average American company declined from 4.3 in 2007 to 4.2 in 2012.

More importantly, this decline in employment can be attributed to the shrinking fraction of companies with paid employees. The average number of workers at employer businesses actually rose from 20.5 people in 2007 to 21.3 in 2012.

Real sales at the average business decreased over the half decade examined.

In 2007, the average American company had $1,230,395 in sales (when measured in 2012 dollars). In 2012, the average U.S. business had sales of $1,213,949. Like the decline in employment, this fall in sales can be attributed to the rising fraction of U.S. companies without paid employees. The average sales at a non-employer business in 2007 was $50,553 (when measured in 2012 dollars).

Five years later, mean revenues at those businesses had shrunk to $47,679. At employer businesses, however, the opposite trend occurred. In 2007, the average U.S. business with paid employees had $5,623,738 in annual revenues (in 2012 dollars). In 2012, the mean receipts of a U.S. employer had reached $5,987,479.

I have long argued that the number of non-employer businesses is not an indicator of America’s entrepreneurial performance. The 2007 and 2012 SBO data confirms this view.

The relative growth of companies without employees that this country has experienced between 2007 and 2012 is associated with declining average real revenues and average employment in the small business sector.

Solopreneur Photo via Shutterstock

Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.